Magna International Inc. MGA recently announced that it has entered into a 50/50 joint-venture agreement with Chongqing Hongli Zhixin Automotive Parts Manufacture Co., Ltd. The company signed this agreement to provide complete seating systems and seating components to Changan Ford – a joint venture between Ford Motor Co. F and Mazda Motor Corporation MZDAY – and other customers in China.
Hongli Zhixin is a leading seating supplier in China with expertise in foam, trim and structures. It is also well-connected with established OEM customers. The joint venture will be headquartered in Chongqing.
Magna International expects the joint venture to strengthen its position in China and provide further knowledge about regional customers and market conditions. Thus, the joint venture will enhance the competitiveness of the company’s cost structure through vertical integration.
Magna International believes that Hongli Zhixin will be its strategic partner in China. Hence, the combination of Magna International’s global seating skills and Hongli Zhixin’s knowledge of the Chinese market will lead to future growth opportunities for both the companies.
Magna International is expanding its business through acquisitions and collaborations. In Oct 2015, the company signed an agreement to acquire Stadco Automotive Ltd. which is expected to close in the fourth quarter of 2015. Magna International believes that this acquisition will complement its capabilities in the body and chassis market. In addition, the buyout will expand its operating unit, Cosma International's geographic presence and global customer base.
Magna International had earlier expanded its presence in China through joint ventures. In May 2015, the company announced plans to enter into a metal-forming joint venture in the country with Chongqing Xingqiaorui. Magna International will have a 53% stake in the joint venture. Chongqing Xingqiaorui supplies body-in-white components and is a key supplier to Changan Ford. While Chongqing Xingqiaorui will contribute three manufacturing facilities, Magna International will contribute one new operation in this joint venture. The company expects that this transaction will lead to growth in China. The deal is anticipated to close by late 2015 or early 2016, subject to regulatory approvals.
Magna International currently carries a Zacks Rank #4 (Sell). O'Reilly Automotive Inc. ORLY, with a Zacks Rank #2 (Buy), is a better-ranked automobile stock.
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